Voters will decide whether to ban state income tax

MURFREESBORO – The folks who honked car horns about a proposed income tax a decade-plus ago will get the chance to vote on banning this form of revenue.

The Nov. 4 ballot includes an Amendment No. 3 that calls for the Tennessee Constitution prohibiting a state income tax. Those motivated about this issue will get their first chance to show up at polling places when early voting starts Wednesday.

When the state lacked revenue to support its budget in the late 1990s and into the first couple of years of the next decade, the Tennessee General Assembly debated whether to enact an income tax, and opponents drove around the Capitol honking their horns in protest.

The law makers settled on raising the Tennessee sale tax rate, which makes it harder on lower-income residents, said John Vile, a political science professor at Middle Tennessee State University in Murfreesboro.

“The problem in Tennessee is that our taxes are highly regressive,” said Vile, who also is the dean of the MTSU Honors College. “We have a regressive tax system that falls more heavily on the poor than it does on the rich.”

Liberals, Vile said, typically favor an income tax because it collects more from people making more.

“And that’s what income taxes on paper are designed to do, so millionaires pay more than others,” said Vile, who has been a political science professor for 37 years, including 25 at MTSU. “An income tax can be less regressive.”

Wealthy people, though, often can hire accountants to help them find exemptions from income taxes, added Vile, noting that it’s easier for the Tennessee General Assembly to tax the poor, “who don’t know what’s going on.”

Residents in Tennessee pay a state sales tax of 7 percent on non-food merchandize, which can go up to 9.75 when counting a local government sales tax option. The lawmakers in recent years have lowered the state sales tax rate on food to 5 percent.

Rutherford County Republican Party Executive Committee Vice Chairman Howard Wall supports an Amendment 3 “that would ban a future state income tax.”

Wall said he’s worried that any potential deal among future lawmakers to lower the sales tax in exchange for establishing an income tax would end up being ignored in the long-term with rates creeping up again.

“The local and state and federal governments should live within their means and not increase taxes, period,” said Wall, a Murfreesboro resident who is a developer and real estate agent.

Although it may be true that sales taxes mean lower-income residents pay a higher percentage of what they make than wealthy people do, Wall said that any tax should require all people to pay their fair share.

“If taxes are in place, then everyone should have to pay and not just the middle- and upper-income people,” Wall said.

Local Democratic Party volunteer Pat Sanders, however, opposes the amendment that would ban an income tax and leave sales taxes in her local Rutherford County at almost 10 percent.

“It is not fair to raise sales taxes,” said Sanders, who resides in the Salem community southwest of Murfreesboro. “There’s got to be something different than raising the sales tax. We might need to have an income tax.”

Sanders said she worries about people having to work three jobs to pay for their needs in a high-sales tax state.

State leaders who favor the amendment to ban income taxes contend it will help attract more wealthy people here and promote economic growth, added Vile, the MTSU political science professor.

“It sounds like we are trying to protect the cash cow,” Vile said. “The problem is do you want to constitutionalize a matter of fiscal policy? What if we got in a situation where the sales taxes went way down? Do you want to cut off an income tax under any circumstances? Some people would say absolutely and that the government should cut spending. Others would say it doesn’t belong in the (state) constitution.”

The national supporters of the 16th Amendment of the U.S. Constitution, however, decided income taxes should be permissible for the federal government, Vile added.

Like Vile, Gabriel Fancher also questions if the state needs to ban income taxes.

“You are tying the hands of the leaders in Nashville when you say you can’t do it anymore,” said Fancher, who is a financial adviser and serves as the secretary for the Rutherford County Republican Party Executive Committee. “What if we needed to build a dam, and we can’t raise taxes?”

Fancher said that although he opposes taxes, he questions why the state would favor its high sales tax over an income tax.

“I’m not a big fan of the sales tax, which is how we fund the state,” said Fancher, who noted he views the income-tax issue different than most other fellow Republicans. “It’s a regressive tax. It’s more punishing to poor people, and we have to consume things. We have to buy things, but we don’t have to work.”

Even if Amendment No. 3 was not going to be up to voters, the chances of the Tennessee General Assembly passing an income tax are extremely slim, said Mark Byrnes, a 23-year political science professor at MTSU and a former eight-year elected member of the Rutherford County Board of Education.

“But this would put it in the Constitution, and therefore, remove any doubt about it,” said Byrnes, who is also dean of the MTSU College of Liberal Arts. “I would expect that it would pass. I don’t detect any groundswell of support for a state income tax.”

Contact Scott Broden at 615-278-5158 or sbroden@dnj.com. Follow him on Twitter @ScottBroden.

Amendment No. 3

Shall Article II, Section 28, of the constitution of Tennessee be amended by adding the following sentence at the end of the final substantive paragraph within the section: Notwithstanding the authority to tax privileges or any other authority set forth in this constitution, the Legislature shall not levy, authorize or otherwise permit any state or local tax upon payroll or earned personal income or any state or local tax measured by payroll or earned personal income; however, nothing contained herein shall be construed as prohibiting any tax in effect on Jan. 1, 2011, or adjustment of the rate of such tax.